There are two issues regarding shorting PSLV vs. SLV. The first is that there IS no PSLV shorts. The second is that SLV is creating shares out of thin air (I know you disagree, silverbars, but you don't get 26mm shares short for over a year without having shares shorted into existence), while PSLV can only create additional shares via a secondary offering. The former happens clandestinely, the latter as a matter of public record.
Additionally, as you yourself have stated, a shorted SLV share is "borrowed" from the owner (who may himself have bought it from a short seller), lent to a seller, who then sells it to a 3rd party. The first party believes he owns the shares he purchased because there is no notification requirement, the third party believes he owns the shares he purchased because his broker provided a trade verification, however only one of those buyers is covered with silver. The only parties that are held harmless upon default are the short-seller and the broker. We would be correct in calling this a shell-game.
Regarding the PSLV shorts, the same circumstance would exist if there were any shorts. It just happens to be less egregious because Eric and Co. cannot simply create shares from thin air like SLV does (I know the prospectus says that's not how it is supposed to work but most silver analysts believe it to be true, including James Turk, Ted Butler, and Andrew Maguire, the JP Morgan whistleblower). Only the shareholders themselves can create a short position and this limits the damage that can be done.
There are five issues with both SLV and GLD that give me pause (and these can be verified in the prospectus and in the FAQ from the SLV or GLD web site:
1. The silver in SLV is NEVER required to be audited. They provide an unaudited bar list.
2. There are ZERO prohibitions against encumbering said gold/silver in the trust (i.e. leasing it out to short-sellers). The majority of storage is in London which has very liberal hypothecation rules (even worse than the US).
3. The fund custodian is allowed to use “subcustodians” to store the precious metal, who have no obligation to give proof that they hold such metal. Depending upon the jurisdiction hypothecation come in to play with subcustodians.
4. The fund custodians (JP Morgan) are the subject of numerous lawsuits alleging naked shorting of silver, which appear highly likely of being successful given the evidence submitted by whistleblower Andrew McGuire and official comments from CFTC Commissioner Bart Chilton.
5. Unless you are a member of the LBMA (there are five members to my knowledge) you cannot take delivery of your silver.
1. ...stores ALLOCATED and AUDITED metal in secure vaults (in this case within the Royal Canadian Mint). The RCM is a Canadian Crown company which acts as an agent of the Canadian Government (putting them on the hook for mishandling of the silver)
2. ...stores PM in a jurisdiction that DOES NOT ALLOW hypothecation (silver cannot be leased out from under the share owners)
3. ...provides silver which is DELIVERABLE UPON DEMAND under certain predetermined conditions.
4. ...is a closed end fund; which means that shares cannot be created upon a whim or upon concluding a deposit which may or may not actually involve the deposit of any physical metal.
For those that want to take a chance that their silver has been hypothecated or double-allocated, or who simply want to participate in a PAPER MARKET rather than a PHYSICAL MARKET, by all means purchase SLV.
For those who want real silver backing their shares, and for which they can take physical delivery, in a jurisdiction that DOES NOT ALLOW hypothecation, then consider PSLV.
I've made my choice; I'll live with the consequences.